Deemed rental income on Property lying vacant despite best efforts

24th July 2019

Deemed rental income on Property lying vacant despite best efforts

Short Overview: Assessee had categorically stated that he had all intention to let out premises but for want of suitable tenants, despite best efforts put in by Estate Agents, whose services had been engaged, he could not find suitable tenants during the previous year under consideration and the property remained vacant for whole of the year. Under the circumstances considering that no income has been realized or accrued and assessee declared nil income in respect of such premises as AO had not even considered the admissible deduction towards Municipal taxes and society maintenance charges, addition made on account of deemed rent was deleted.

AO made additions on account of deemed rent in respect of properties of assessee lying vacant. on the ground that premises were vacant during whole of the year and not let out at all during the year, hence, section 23(1)(c) would not apply and, therefore, assessee was not eligible for any deduction on account of vacancy and annual value of all the vacant property had to be taken in terms of section 23(1)(a).

it is held that assessee had categorically stated that he had all intention to let out premises but for want of suitable tenants, despite best efforts put in by Estate Agents, whose services had been engaged, he could not find suitable tenants during the previous year under consideration and the remained vacant for whole of the year. Under the circumstances considering that no income has been realized or accrued and assessee declared nil income in respect of such premises and as AO had not even considered the admissible deduction towards Municipal taxes and society maintenance charges, addition made on account of deemed rent was deleted.

Decision: In assessee’s favour.

Relied: Asstt. CIT v. Dr Prabha Sanghi; ITA No. 20l7/Del/2010 (Del Mb), Smt. Poonam Sawhney v. ITO (2008) 20 SOT 69 (Del) : 2008 TaxPub(DT) 1156 (Del-Trib), Smt. Shakuntala Devi v. Dy Director of Income Tax ITA No. l524/Bang/2010, Shri Vikas Keshav Garud v. ITO (2016) 160 ITD 7 (Pune-Trib) : 2016 TaxPub(DT) 3470 (Pune-Trib), Premsuda Exports (P) Ltd. v. ACIT (2008) 110 ITD 158 (MUM-Trib) : 2007 TaxPub(DT) 1270 (Mum-Trib), Renu Shamlal v. Asstt. CIT (ITA No. -1100/Del/2014, dt. 21-9-2016) and Smt. Indu Chandra v. DCIT (ITA No. 96 (LKW) 2011.

IN THE ITAT, MUMBAI BENCH

SANDEEP GOSAIN, J.M. & G. MANJUNATHA, A.M.

ACIT v. A.S. Motiwala & (Vice-Versa)

I.T.A. No. 6664/Mum/2017

I.T.A. No. 165/Mum/2018

22 February, 2019

Appellant by: Anita Hardasani, Departmental Representative

Respondent by: Chetan A. Karia, Authrorised Representative

ORDER

Sandeep Gosain, J.M.

The present two appeals have been filed by the revenue as well as assessee are against the order of Commissioner (Appeals)-32, Mumbai dated 29-9-2017 for assessment year 2009-10.

2. Since, the facts raised in both the appeals filed by the revenue and the assessee are identical, therefore for the sake of convenience; they are clubbed, heard and disposed of by this consolidated order.

3. First of all we take up appeal in ITA No. 165/Mum/2018 filed by revenue for assessment year 2009-10 on the grounds mentioned herein below :–

(i) “Whether on the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) has erred in deleting the addition made under section 68 of the Income Tax Act, 1961 without appreciating the facts that as per enquiry & investigation made by this office as well as Investigation Wing, Mumbai, the alleged parties are mere accommodation entry providers who provide accommodation entry in the form of unsecured loans as per the requirements of the beneficiary”.

(ii) “Whether on the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) has erred in deleting the addition made on account of deemed rent without appreciating the facts that the said premises were vacant during whole of the year and not let out at all during the year, hence the provisions section 23(1)(c) would not apply and therefore assessee is not eligible for any deduction on account of vacancy and annual value of all the vacant properties should be taken in terms of section 23(1)(a) of the Income Tax Act.”

(iii) The Appellant craves leave to add, delete, alter, amend and modify any or all of the grounds of appeal.

4. As per the facts of the present case, the assessee is an individual deriving remuneration as partner in M/s. A.K. Motiwala and M/s. Crown Jewel. During the assessment year 2009-10, he had earned income from business & profession, house property and other sources. The return of income for the year under appeal was filed on 8-2-2010 declaring total income at Rs. 28,48,460 The return of income was processed under section 143(1) of the Act. Subsequently, on receipt of certain information from DGIT(lnv), Mumbai, the assessment was reopened by issuance of notice under section 148 on 7-12-2015. Thereafter providing sufficient opportunity of hearing and seeking reply of the assessee, assessment order under section 143(3) read with section 147 of the Income Tax Act was passed thereby making certain additions/disallowances.

Aggrieved by the order of assessing officer, assessee preferred appeal before learned Commissioner (Appeals) and learned Commissioner (Appeals) after considering the case of both the parties partly allowed the appeal of the assessee.

Now before us, the revenue as well as assessee have preferred their respective appeals. Firstly we are dealing with the appeal filed by the revenue.

Ground No. 1

5. This ground raised by the revenue relates to challenging the order of learned Commissioner (Appeals) in deleting the addition made under section 68 of the Income Tax Act, 1961.

6. Learned Departmental Representative appearing on behalf of the department relied upon the orders passed by assessing officer and argued that learned Commissioner (Appeals) had erred in deleting the additions made under section 68 of the Act without appreciating the fact that as per enquiry & investigation made by the assessing officer as well as Investigation Wing, Mumbai, the alleged parties were mere accommodation entry providers who provide accommodation entry in the form of unsecured loans as per the requirements of the beneficiary. In this regard, Investigation Wing of the Department during search action under section 132 of the Act had recorded statement of Bhawarlal Jain & Ors. in which it was found that the loans paid by them were not genuine. The assessee had received Rs. 3,09,00,000 from the parties who were part and parcel of Bhawarlal Jain Group and the assessee could not prove the identity/creditworthiness of the parties and genuineness of the transactions. Lastly, it was submitted the order of assessing officer be restored by quashing the order of learned Commissioner (Appeals).

7. On the other hand, learned Authrorised Representative relied upon the orders passed by the learned Commissioner (Appeals) and reiterated the same arguments as were raised by him before learned Commissioner (Appeals).

8. We have heard counsels for both the parties at length and we have also perused the material placed on record, judgment cited as well as the orders passed by revenue authorities.

Before we decide the merits of the case, it is necessary to evaluate the orders passed by learned Commissioner (Appeals). The learned Commissioner (Appeals) has dealt with the above grounds raised by the revenue in page no. 13 to 19 of its order and the same is reproduced below :–

Grounds No. 4 to 5 is raised against the addition made of Rs. 3,09,00,000 as unexplained cash credit under section 68 of Income Tax Act, 1961. The learned assessing officer has noticed that the appellant has during the year under consideration received unsecured loans of Rs. 3,09,00,000.

During the appellate proceedings, the learned Authrorised Representative has filed detailed submissions and other relevant documents in a paper book. He has also referred to several case laws on which they rely in support of the ground of appeal. I have carefully considered the facts of the case and submissions of the learned Authrorised Representative. I have also gone through the decisions relied on by the assessing officer and learned Authrorised Representative. It is observed that during the assessment proceedings the appellant has filed relevant details required to prove the identity and creditworthiness of the investing companies and the genuineness of the transactions in the form of PAN, incorporation certificate, memorandum of associate, IT return copies, confirmations, bank statements, audited accounts etc as evident from the record. The learned Authrorised Representative has further argued that the transaction has taken place through banking channels, therefore the genuineness of the investment can not be doubted. Hence the Authrorised Representative argued that appellant has discharged its onus and the identity, genuineness and creditworthiness of the four companies were proved beyond doubt. The excessive reliance on the statements given third-party at the time of search is considered to be not proper even without erring the affidavit filed by him during the scrutiny assessment. He further argued ition was made without providing the appellant the corroborative evidence in the sion of the assessing officer to prove that the appellant has paid the cash, as alleged, against receipt of cheques. On the other hand the learned assessing officer has believed the evidence(supporting documents) submitted before him was engineered to explain bogus investment saying that the those who involved in accommodation entries in an organized way are meticulous in arranging the make-believe documents. He further believed that the said key-persons of Bhanvartal Jain group have given categorical statements stating that they have involved only in bogus transactions by giving accommodation entries by giving cheques in exchange of cash through their group entities. The learned Authrorised Representative on the other hand argued that the assessing officer has ignored the fact that all the statements were retracted by Bhanvarla Jain and all his associates. It is alleged that the assessing officer failed to collect further information and not made any efforts to disprove the genuineness of the transactions of unsecured loans received. It is also the contention of the learned Authrorised Representative that the assessing officer has failed to discuss the merits of the cases cited by the appellant during the course of assessment proceedings.

2.4.7 In the present case before me, as seen from the details filed before the assessing officer, as evident from the paper book, I do not find any inconsistency or incoherence in respect of the receipt of the unsecured loan received from the said loan creditors. Primarily, as regards the transactions, the same has routed through the banking channels and the source can not be doubted. It was held in several cases that whatever may be the strength of presumption it cannot substitute the evidence. Even though the transaction is from a tainted group, the assessing officer has not made any efforts to show that the transaction with the appellant firm was sham, fictitious or artificial except believing the statements given by the accommodation entry providers. He has failed to gather any evidence to show that the unaccounted cash of the appellant has changed hands consequently replacing the cheque payments. Further he has not provided the corroborative evidence or document which he relied on to the appellant and also failed to prove how the details like confirmation letter, PAN, IT returns, fmancials, bank statements etc can not be taken note of in this regard. The Honble Murribai ITAT in the case of Anant shelters P ltd 20 taxmann.com 153 : 2012 TaxPub(DT) 2257 (Mum-Trib) has laid down certain principles with regard to section 68 which the assessing officer is bound to follow. It has observed as under :–

“(i) section 68 can be invoked when following three conditions are satisfied–(a) when there is credit of amounts in the books maintained by the assesses (b) such credit has to be a sum of money during the previous year (c) either the assessee offers no explanation about the nature and source of such credits found in the books or the explanation offered by the assessee, in the opinion of the assessing officer, is not satisfactory. It is only then that the sum so credited may be charged to income-tax as the income of the assessee of that previous year.

(ii) The expression the assessee offers no explanation means the assessee offers no proper, reasonable and acceptable explanation as regards ~the sums found credited in the books maintained by the assessee. The opinion of the assessing officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the assessing officer is required to be formed objectively with reference to the material on record file. Once the explanation of the assesses is found unbelievable or false the assessing officer is not required to bring positive evidence on record to treat amount in question as income of the assesses. While considering the explanation of the assessee, the assessing officer has to act reasonably–application of mind is the sine qua non for forming the opinion.

(iii) Phrase appearing in the section–nature and sources of such credits–should be understood in right perspective, so that genuineness of the transaction can be decided on merits and not on prejudices. Courts are of the firm view that the evidence produced by the assessee cannot be brushed aside in a casual manner.

Assessee cannot be asked to prove impossible.

Explanation about ‘source of source’ or ‘origins of the origin’ cannot and should not be called for while making inquiry under section.

(iv) In the matters related to section 68 burden of proof cannot be discharged to the hilt–such matters are decided on the particular facts of the case as well as on the basis of preponderance of probabilities. Credibility of the explanation, not the ‘materiality of evidences, is the basis for deciding the cases falling under section 68.

(v) Though confirmatory letters or account payee cheques do not prove that the amount in question is properly explained for the purpose of section 68 and assessee has to establish identity and creditworthiness of the creditor as well as the genuineness of the transaction, it is also true that money received through foreign remittance with RBI approval is a strong indicator ofbona fide of the cash credit that has to be disapproved only with positive evidence.

(vi) In matters regarding cash credits, the onus of proof is not a static one. As per the provisions of the section the initial burden of proof lies on the assessee.

Amount appearing in the books of account of the assessee is considered a proof against him. He can prove the identity of the creditors by either furnishing their PANs or assessment orders. Similarly, genuineness of the transaction can be proved by showing that the money was received by an account payee cheque or by draft. Creditworthiness of the lender can be established by attending circumstances.

Once the assesses produces evidences about identity, genuineness and creditworthiness of the lender onus of proof shifts to the revenue.”

Further, the Honourable Jurisdictional ITAT in its latest decision in the case of M/s. Arceli Realty Limited in ITA No. 6492/Mum/2016 has held the similar issue in favour of the assessee and observed as under :–

…we are of the considered opinion that the onus cast upon the assessee, as provided under section 68 of the Act, has been duly discharged by the assessee as the identity of the share subscribers, creditworthiness and genuineness of the transaction is not in doubt or it can be said that the same has been proved/explained by the assessee. Now, the onus reverted back upon the Revenue to prove otherwise. The learned assessing officer merely relied, upon the information received from the investigation wing and did not make any independent enquiry. The assessing officer was expected to disprove the claim of the assessee with the help of evidence, if any, received from the investigation wing, as has been claimed by the Revenue. The Revenue has nowhere proved that any malafide is done by the assessee. Failure to do so, vitiate the addition made under set of facts. Reference can be made to the decision of CIT v. Orissa Corporation (P) Limited (1986) 159 ITR 78 (SC) : 1986 TaxPub(DT) 1425 (SC) and the ratio laid down in Khandelwal Construction v. CIT (1997) 227 ITR 900 (Gau) : 1997 TaxPub(DT) 701 (Gau-HC). The satisfaction has to be derived from the relevant facts and that to on the basis of proper enquiry by the assessing officer and such enquiry must be reasonable and just. In the present case, the assessing officer has not brought any evidence on record that the amounts received from the said loan creditors are merely accommodation entries. As mentioned earlier, the learned assessing officer has acted merely on the basis of information received from Investigation wing. The ratio laid down by Hon’ble Delhi High Court in CIT v. Vrindaban Farms (P) Ltd. squarely gives shelter to the assessee, wherein, it was held that if the identity and other details of share application money can not be treated as undisclosed income in the hands of the company.

In the present case, the assesses even has proved the source of source, therefore, the creditworthiness was also proved, consequently, no addition made under section 68 of the Act can be said to be justified….

The assessee duly furnished the proof of identity like PAN, bank account details from the bank, other relevant material, genuineness of the transaction, payment through banking channel and even the source of source, therefore, the assessee has proved the conditions laid down under section 68 of the Act. It is also noted that inspite of repeated request, the learned assessing officer did not provide opportunity to cross examine the concerned persons and even the relevant information and allegation, if any, made therein, which has been used against the assessee, was not provided to the assessee. At this stage, we add here that mere information is not enough rather-//has to be substantiated with facts. The information may and may not be correct. For fastening the liability upon anybody, the department has to provide the authenticity of the information to the person against whom such information is used. The principle of natural justice, demands that without confronting the assessee of evidence, if any, or the information, no addition can be made. Even otherwise, Article-265 of the Constitution of India, only legitimate taxes has to be levied collected. In our humble opinion, the assessee has duly discharged the onus upon it, therefore, respectfully following the decisions from Hon’ble Apex Court, Hon’ble High Courts and Hon’ble jurisdictional High Court, we reverse the order of the learned Commissioner (Appeal), resultantly, this ground of the assessee is allowed.”

2.4.8 The Honble Apex Court in the case of Lovely Exports Pyt Ltd. (2009) 319 ITR 5 (SC) : 2009 TaxPub(DT) 261 (SC) held that the assessing officer is at liberty to bring to tax the amounts in their respective hands of the investors if their identity, genuineness and creditworthiness is not proved. The assessing officer should have made efforts to assess the amounts in the hands of the investors at least on protective basis.

Even in case, the creditworthiness of the investors is not proved it will not automatically give license to the assessing authority to make additions in the hands of the recipient under section 68 unless it is proved that it is the unexplained and unaccounted money of the appellant which has been introduced in its books of account in the name of bogus/non-existent entities. As it is observed that, in the instant case, the assessing officer has not made any dent on these lines. On the other hand the appellant has filed all the details and supporting documentary evidence to prove the identity, genuineness and creditworthiness of these three unsecured loan parties.

2.4.9 As seen from the above, the appellant has furnished all the documents and details proving conclusively the three ingredients of identity, creditworthiness of the share-applicants and the genuineness of the transaction. The amount was paid by investors from their running bank accounts which were duly accounted in the books of the appellant as well as the investors as evident from the audited financial statements filed. The said loan creditors have confirmed the transaction. In view of the above discussion, I hold that the unsecured loan received from these parties can not be doubted and addition made by the assessing officer under section 68 of the Act cannot survive the test of judicial scrutiny. I therefore direct the assessing officer to withdraw the addition. The issue raised in grounds from 4 to 15 is allowed.

9. After having gone through the facts of the present case as well as orders passed by the revenue authorities, we find as per the facts of the case that assessee is an individual and is deriving remuneration as partner. During the year under consideration, the assessment in the case of assessee was reopened on the information received from the Investigation Wing of the Income Tax Department as the Investigation Wing had carried out search under section 132 of the Act in the case of Bhawarlal Jain Group and accordingly recorded the confessional statement of Bhawarlal Jain & Ors. to the effect that they were engaged in the business of giving accommodation entries and loan paid by them were no genuine. Therefore, during the reopened assessment proceedings, assessing officer observed that identity, creditworthiness of the parties and genuininess of the transactions were not satisfactory.

Hence additions under section 68 of the Act was made.

10. From the records, we notice that to establish the identity and creditworthiness/capacity of the parties to provide loan to the assessee, the assessee had placed on record copy of PAN cars, complete names and addresses, copies of acknowledgement of return of income, copies of bank statements, evidencing advances having been made through banking channels thereby establishing their capacity to advance loans, audited statement of accounts. Apart from that, vide letter dated 6-9-2016, the assessee had also established the source of source in the hands of lender.

The assessing officer even in spite of above documents had merely relied upon the statement of Bhawarlal Jain, whereas the documents placed on record by the assessee overrides the general statement of Bhawarlal Jain. Even the said statement of Bhawarlal Jain was subsequently retracted and no opportunity of cross examination was given to the assessee, thus the significance of the statement of Bhawarlal Jain had lost its credibility. The assessing officer could not demonstrate that any movement of time during the course of search, the Investigating Team had ever made interrogation of the parties, who had advanced loan to the assessee. Thus in this way, the assessee had discharged its onus to prove the identity, genuineness and creditworthiness of the 04 companies. The transactions of loan to the assessee were all routed through the banking channels. Thus, the source of the loan cannot be doubted, even though the additions were made on the basis of presumption. It is a settled law that presumption howsoever strong may be, cannot take place of proof. Assessing officer had failed to show that the transaction with the assessee was sham, fictitious or artificial except believing the statements given by the accommodation entry providers. The assessing officer also failed to gather any evidence to show that the unaccounted cash of the assessee had changed hands consequently replacing the cheque payments. The Honble Mumbai ITAT in the case of Anant shelters P ltd 20 taxmann.com 153 : 2012 TaxPub(DT) 2257 (Mum-Trib) had held :–

Explanation about ‘source of source’ or ‘origins of the origin’ cannot and should not be called for while making inquiry under section.

(v) Though confirmatory letters or account payee cheques do not prove that the amount in question is properly explained for the purpose of section 68 and assessee has to establish identity and creditworthiness of the creditor as well as the genuineness of the transaction, it is also true that money received through foreign remittance with RBI approval is a strong indicator of bona fide of the cash credit that has to be disapproved only with positive evidence.

(vi) In matters regarding cash credits, the onus of proof is not a static one. As per the provisions of the section the initial burden of proof lies on the assessee. Amount appearing in the books of account of the assessee is considered a proof against him. He can prove the identity of the creditors by either furnishing their PANs or assessment orders. Similarly, genuineness of the transaction can be proved by showing that the money was received by an account payee cheque or by draft. Creditworthiness of the lender can be established by attending circumstances.

Once the assesses produces evidences about identity, genuineness and creditworthiness of the lender onus of proof shifts to the revenue.”

11. The ITAT in another decision in the case of M/s. Arceli Realty Limited in ITA No. 6492/Mum/2016 (2017) had held :–

…we are of the considered opinion that the onus cast upon the assessee, as provided under section 68 of the Act, has been duly discharged by the assessee as the identity of the share subscribers, creditworthiness and genuineness of the transaction is not in doubt or it can be said that the same has been proved/explained by the assessee. Now, the onus reverted back upon the Revenue to prove otherwise. The learned assessing officer merely relied, upon the information received from the investigation wing and did not make any independent enquiry. The assessing officer was expected to disprove the claim of the assessee with the help of evidence, if any, received from the investigation wing, as has been claimed by the Revenue. The Revenue has nowhere proved that any mala fide is done by the assessee. Failure to do so, vitiate the addition made under set of facts. Reference can be made to the decision of CIT v. Orissa Corporation (P) Limited (1986) 159 ITR 78 (SC) : 1986 TaxPub(DT) 1425 (SC) and the ratio laid down in Khandelwal Construction v. CIT (1997) 227 ITR 900 (Gau) : 1997 TaxPub(DT) 701 (Gau-HC). The satisfaction has to be derived from the relevant facts and that to on the basis of proper enquiry by the assessing officer and such enquiry must be reasonable and just. In the present case, the assessing officer has not brought any evidence on record that the amounts received from the said loan creditors are merely accommodation entries. As mentioned earlier, the learned assessing officer has acted merely on the basis of information received from Investigation wing. The ratio laid down by Hon’ble Delhi High Court in CIT v. Vrindaban Farms (P) Ltd. squarely gives shelter to the assessee, wherein, it was held that if the identity and other details of share application money can not be treated as undisclosed income in the hands of the company.

The assessee duly furnished the proof of identity like PAN, bank account details from the bank, other relevant material, genuineness of the transaction, payment through banking channel and even the source of source, therefore, the assessee has proved the conditions laid down under section 68 of the Act. It is also noted that inspite of repeated request, the learned assessing officer did not provide opportunity to cross examine the concerned persons and even the relevant information and allegation, if any, made therein, which has been used against the assessee, was not provided to the assessee. At this stage, we add here that mere information is not enough rather-//has to be substantiated with facts. The information may and may not be correct. For fastening the liability upon anybody, the department has to provide the authenticity of the information to the person against whom such information is used. The principle of natural justice, demands that without confronting the assessee of evidence, if any, or the information, no addition can be made. Even otherwise, er Article-265 of the Constitution of India, only legitimate taxes has to be levied collected. In our humble opinion, the assessee has duly discharged the onus upon it, therefore, respectfully following the decisions from Hon’ble Apex Court, Hon’ble High Courts and Hon’ble jurisdictional High Court, we reverse the order of the learned Commissioner (Appeal), resultantly, this ground of the assessee is allowed.”

12. The learned Commissioner (Appeals) after appreciating the facts had rightly relied upon the judgment of Hon’ble Apex Court in the case of Lovely Exports Pyt Ltd. (2009) 319 ITR 5 (SC) : 2009 TaxPub(DT) 261 (SC), wherein it was held that the assessing officer is at liberty to bring to tax the amounts in their respective hands of the investors if their identity, genuineness and creditworthiness is not proved. The assessing officer should have made efforts to assess the amounts in the hands of the investors at least on protective basis. Even in case, the creditworthiness of the investors is not proved it will not automatically give license to the assessing authority to make additions in the hands of the recipient under section 68 unless it is proved that it is the unexplained and unaccounted money of the appellant which has been introduced in its books of account in the name of bogus/non-existent entities.

13. Since the assessing officer had not observed the principles laid down by the Hon’ble Apex Court, thus learned Commissioner (Appeals) had rightly deleted the additions, more particularly after appreciating the facts that the assessee had filed all the details and supporting documentary evidences to prove the identity, genuineness and creditworthiness of the lenders. We also cannot lost sight of the fact that amount was paid by the investors from their running bank accounts which were also duly accounted in the books of the assessee as well as investors as is evident from the audited financial statements coupled with confirmation of the creditors.

14. Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by learned Commissioner (Appeals). Therefore, we see no reasons to interfere into or deviate from the findings recorded by the learned Commissioner (Appeals). Hence, we are of the considered view that the findings so recorded by the learned Commissioner (Appeals) are judicious and are well reasoned. Resultantly, these ground raised by the revenue stands dismissed.

Ground No. (ii)

15. This ground raised by the revenue relates to challenging the order of learned Commissioner (Appeals) in deleting the addition made on account of ‘deemed rent’.

16. Learned Departmental Representative relied upon the orders passed by assessing officer and submitted that learned Commissioner (Appeals) had erred in deleting the additions made on account of ‘deemed rent’ without appreciating the facts that the said premises were vacant during whole of the year and not let out at all during the year, hence the provisions section 23(1)(c) would not apply and therefore assessee is not eligible for any deduction on account of vacancy and annual value of all the vacant property should be taken in terms of section 23(1)(a) of the Income Tax Act.

17. On the other hand, learned Authrorised Representative relied upon the order passed by learned Commissioner (Appeals) and reiterated the same arguments as were raised before learned Commissioner (Appeals).

18. We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities.

Before we decide the merits of the case, it is necessary to evaluate the orders passed by learned Commissioner (Appeals). The learned Commissioner (Appeals) has dealt with the above grounds raised by the revenue in page no. 19 to 20 of its order and the same is reproduced below :–

Ground No. 16 to 19 are raised against the addition made by the assessing officer, sum of Rs. 3,07,300 as deemed rent by invoking the provisions of section 23 of the Act. The assessing officer observed that the appellant has not offered any rental income from the following properties during the year :–

(i) Flat No. 601,B/2, Bldg.No. 3, Serenity Towers, Oshiwara(20%) ii) Flat No. 602,B/2, Bldg.No. 3, Serenity Towers, Oshiwara(20%)

(ii) iii) Commercial Premise at flat No. B102 & Garage No. 7 at Rizvi Mahal, Bandra(W)(25%)

(iii) iv) Flat at Chateau Di Marque, S-3, St. Marks Road, Bangalore(20%) v) Flat at Chateau De Marque, T-1, St. Marks Road, Bangalore(20%) Appellant submitted that the aforesaid premises had been acquired to earn regular rental income there from. It was contended that appellant had all the intention to let out these premises but for want of suitable tenants despite best efforts put in by the Estate Agents, whose services had been engaged, he could not find suitable tenants during the previous year under consideration and the said premises remained vacant for the whole of the year. Under the circumstances considering that no income has been realized or accrued and declared ‘nil’ income in respect of the said premises. The Estate Agents had pointed out certain drawbacks in regard to the location and certain adverse features in respect of the said premises as set out hereunder due to which it was difficult to find suitable tenants. As the said properties remained vacant for whole of the relevant financial year, no deemed rent should be assessed in view of the CBDT’s Circular No. 14/2001 wherein it was stated that “where the property or any part of the property is let and was vacant during the whole or part of the previous year and owing to such vacancy, the actual rent received or receivable is less than ALV, the sum so received or receivable during the year is less than the sum received or receivable during year shall be annual value.

Without prejudice to the submissions made herein above appellant submits that while arbitrarily computing the share of income of appellant from this properties, the assessing officer has not considered the admissible deduction towards Municipal taxes and society maintenance charges. Appellant craves leave to submit here under the details of the admissible deduction in this behalf.

Flat No. B-2/601 Serinity Towers- Rs. 13,728

Flat No. B-2/602 Serinity Towers- Rs. 9,504

Rizvi Mahal Premises -Rs. 8,502

Further the learned Authrorised Representative has placed reliance on the decisions of the following case laws :–

ACIT v. Dr Prabha Sat. in ITA No. 20l7/Del/2010 (Del Mb)

Smt. Poonam Sawhney v. ITO (2008) 20 SOT 69 (Delhi) : 2008 TaxPub(DT) 1156 (Del-Trib)

Smt. Shakuntala Devi v. Dy Director of Income Tax ITA No. l524/Bang/2010

Shri Vikas Keshav Garud v. ITO (2016) 160 ITD 7 (Pune) : 2016 TaxPub(DT) 3470 (Pune-Trib)

Premsuda Exports (P) Ltd. v. ACIT (2008) 110 ITD 158 (MUM.) : 2007 TaxPub(DT) 1270 (Mum-Trib)

Renu Shamlal v. ACIT in (I.T.A. No. -1100/Del/2014, dt. 21-9-2016)

Smt. Indu Chandra v. DCIT (ITA No. 96 (LKW) 2011

Considering the facts of the case and submissions made as above, I am of the considered opinion that the addition made on account of deemed rent in respect of the vacant properties is not justified. The assessing officer is therefore directed to withdraw the addition. These grounds of appeal are therefore allowed.

19. After having gone through the facts of the present case as well as orders passed by the revenue authorities, we find that assessing officer made additions under section 23 of the Act on account of deemed rent in respect of the properties of the assessee lying vacant. Whereas assessee had categorically stated that he had all the intention to let out these premises but for want of suitable tenants, despite best efforts put in by the Estate Agents, whose services had been engaged, he could not find suitable tenants during the previous year under consideration and the said premises remained vacant for the whole of the year.

20. Since the said properties remained vacant for whole of the relevant financial year, therefore learned Commissioner (Appeals) taken into consideration the CBDT Circular No. 14/2001, wherein it was stated that “where the property or any part of the property is let and was vacant during the whole or part of the previous year and owing to such vacancy, the actual rent received or receivable is less than ALV, the sum so received or receivable during the year is less than the sum received or receivable during year shall be annual value, then no deemed rent could be assessed. Learned Commissioner (Appeals) also noted that the assessing officer had not considered the admissible deduction towards Municipal taxes and society maintenance charges. Therefore, while relying upon the judgments in the case of ACIT v. Dr Prabha Sanghi; ITA No. 20l7/Del/2010 (Del Mb), Smt. Poonam Sawhney v. ITO (2008) 20 SOT 69 (Delhi) : 2008 TaxPub(DT) 1156 (Del-Trib), Smt. Shakuntala Devi v. Dy Director of Income Tax ITA No. l524/Bang/2010, Shri Vikas Keshav Garud v. ITO (2016) 160 ITD 7 (Pune) : 2016 TaxPub(DT) 3470 (Pune-Trib), Premsuda Exports (P) Ltd. v. ACIT (2008) 110 ITD 158 (MUM.) : 2007 TaxPub(DT) 1270 (Mum-Trib), Renu Shamlal v. ACIT in (I.T.A. No. -1100/Del/2014, dt. 21-9-2016) and Smt. Indu Chandra v. DCIT (ITA No. 96 (LKW) 2011 had deleted the additions made on account of deemed rent.

21. Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by learned Commissioner (Appeals). Therefore, we see no reasons to interfere into or deviate from the findings recorded by the learned Commissioner (Appeals). Hence, we are of the considered view that the findings so recorded by the learned Commissioner (Appeals) are judicious and are well reasoned. Resultantly, these ground raised by the revenue stands dismissed.

Ground No. (iii)

22. This ground raised by the revenue is general in nature, thus requires no specific adjudication.

Now we take up I.T.A. No. 6664/Mum/2017 filed by assessee.

23. Since we have already decided the appeal filed by revenue in ITA No. 165/Mum/2018 for assessment year 2009-10 and upheld the order of learned Commissioner (Appeals) on merits in deleting the additions. Therefore in view of our above findings in ITA No. 165/Mum/2018, the present appeal filed by the assessee has become infructuous.

24. In the net result, both the appeals filed by the revenue and assessee stands dismissed with no order as to cost.

24th July 2019

Deemed rental income on Property lying vacant despite best efforts

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